Just starting out to do what, I wonder. If they are just starting out to build a company from scratch, the successful startup CEO is usually full of tales about following your dream, doing what you love, 80 hour work weeks, living on pizza and diet coke, constantly begging for money, going without salary for months, squeezing friends for sweat equity participation and trying and failing a hundred times to get his vision off the launch pad.
Sounds like so much fun that I am amazed that not everyone in Grad school is licking their chops for an opportunity to do it as well. Though, given the economy and the rapid development and adoption of social network technologies, there are more and more students and young professionals taking the startup leap every day. Deal flow in Silicon Valley has not been bigger since the early days of the dotcom bubble in the late 1990’s and 2000.
So, for the hordes who are taking that leap, what are the best tips that will guide them and be useful to their experience in trying to bring a new company to life? I am asked this question a lot. Having started several companies and taken 3 of them to successful exits, while the 4th is still a work in progress, I think I have learned some pretty simple rules for launching a startup, and particularly in today’s funding reality. These 10 tips are not the usual business-school guidance, but rather the pure, unvarnished reality of what you need to do and be, in order to launch and fund a successful startup:
1) Fierce determination and the ability to see the truth is GOLD. Good entrepreneurs never, ever give up, and they always, always adapt their plan to what works, while rapidly abandoning what doesn’t work, no matter how much of their ego is invested in the outcome. Think Bill Gates. And, nothing ever goes according to plan. Self-delusion is very bad in startups, and it will cause you to squander precious capital chasing great technology for which there is no market. Or, big markets for which you have no useful solution.
2) If you have a vision for something that hasn’t been done yet, stick with it. People don’t know what they don’t know and they don’t want what they haven’t seen. Facebook? Really? Pinterist? iPADs? Instagram? Really?
3) Know who you are. And who you are not. Don’t try to understand how the berries actually grow in Legal, Finance and Compliance. Think Mark Zuckerberg. Hire good lawyers and accountants when you can afford them. Look in the mirror. That’s who you are. Be that.
4) Become a great story-teller. Learn how to tell your story to investors in 15 minutes or less. Unfortunately, you must use PowerPoint. Never read from the slides. Pictures are worth thousands of words. Think about what you’re doing as if you were showing a trailer to a film and you want the audience to come see it. Think about all the trailers you’ve seen and make your pitch as compelling as the best of the best. Top Gun would be a good place to start. If this is your trailer, is your audience going to be interested in watching the film or not? Think Steve Jobs. If you can’t tell a convincing story, you’re done. You don’t get the second date. It’s like speed dating, and you want to get to the real date. That’s what pitching to investors is about today.
5) What is your story about? People (and VCs are actually people) love and, more importantly, remember stories. Make it your story. Personalize it. Make your product or service come from your own experience. Why you needed to bring this to market and why it will change the world. It also needs to solve a really big problem, and one that VCs can relate to even if it doesn’t affect them personally. Your challenge is to bring your story down or up to their level of understanding, empathy and sensitivity. Create the “Ah-Hah” moment for them, so your story sticks in their minds. There is a ton of deal flow, and your story needs to rise above all those other business pans. The great news is that if you can do this well, you will find very few competitors. It is also what will set you apart as a leader.
6) Have a really great team. Not for the VCs, though they always fund the people over the plan, but have a great team for you. Your idea is not the company. Your team is the company. You are not the smartest guy in the room, and you can’t do this without them. You may have the vision or the technology or the marketing savvy to create huge markets, but without all of the other moving parts, you will not bring anything to market. If you are in love with your team, your investors will get it and if you aren’t, they will get that too.
7) Get the money. Many entrepreneurs get fixated on the size of the raise or worse yet, the valuation. You may believe that your amazing play is worth millions pre-money, but the fastest way to kill a deal is to come in with a term sheet that’s says you know nothing about how to valuate a startup. No one else does either by the way, but the key is reasonableness (just like in life) and VCs want to see a reasonable leader put forth a number that makes sense. If your revenue projection is conservative and it says you will be at $5M in 3 years and it will take $2M to get there, a fair pre-money valuation is probably $5M, which means you are willing to give up 40% of your company to get the money to start your dream toward reality. That doesn’t mean you should start at $5M, but it also doesn’t mean you should start at $12M. If you have pitched your deal 40 times and you find one VC willing to invest $1M, modify your plan so that you can make that $1M work.
8) Keep your powder dry. Just because you raised that $2M, doesn’t mean you have to spend it. Be really frugal. Pretend it’s your own money. Constantly ask yourself whether you would spend your own money doing whatever. Enlist other people in your dream. Now that you are a great story-teller, that should be easy. Get them to work for a lot less than they think they can or should. If they won’t, they don’t belong on your team. This is a startup. It isn’t GE.
9) You will make bad decisions. It’s OK. Recognize them when they happen and correct them really fast. Acknowledge your screw-ups to your team. Explain what happened and why you will never do that again. You will all learn.
10) Enjoy every minute of it. Work 80 hour weeks. Live on Pizza and coke. Push yourself beyond your wildest imagination. Lead. This will never happen again. Not this.
Best of luck. You will need all of it you can get.